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Debt Collection Basics: Can I Pay Off Debts in Collection?

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In a Nutshell

Learn how to tell if your debt is in collection, how you can use a payment plan to pay off your past-due debt and what steps you can take to stop stressful collection account activity.

Written by the Upsolve TeamLegally reviewed by Attorney Andrea Wimmer
Updated August 7, 2020

Debt hangs on even when the world is in turmoil. Debt can plunge into collections after a job loss, illness or injury, or reduced work hours. When collections agencies are working on your account, you’ll get bombarded with phone calls and letters. You might be wondering how you can catch up on your old debt. We’ll help you learn how to tell if your debt is in collection and how you can use a payment plan to pay off your past-due debt. We’ll even help you destress by telling you what steps you can take to stop stressful collection account activity, and what you can do when you can’t pay your debt. 

Why is My Debt in Collection? 

Debt can go into collection after missed payments, late payments, and unpaid debt. Giving out loans is one type of business, and collecting debt is another. Creditors and financial institutions must decide which past-due collection accounts are worth spending time on and which accounts they should pass on to a debt collector or debt buyer. Large financial institutions even have patents and formulas that tell them when debt goes to collection. Technically, debt can go into a collection account the day after you miss a payment, but it’s common for a creditor to wait until 30 days after a missed payment. When you take on a personal loan or credit through credit card debt, medical bill debt, personal loans, and student loans, the details of late payments and collections are usually in the fine print of the contract. 

Credit card debt and medical bill debt are the most common types of debt that get sent to collections agencies. The Federal Reserve reported credit card charges of $44.7 billion for one year.[1] The Journal of General Internal Medicine reported that over 100 million adults suffer financial hardship from medical bills.[2] New York has paused some student loans and medical bill collections due to Covid-19, but many other types of collections continue. It can feel impossible to catch up on an account after a few missed debt payments, but there are ways to deal with credit card debt and debt from medical services. 

When a creditor believes an account owner has stopped paying , debt is reported as a charge off to credit reporting agencies such as Experian, Transunion, and Equifax. Federal laws demand that creditors report an account as a charge off if no payment is received in 90 days from the most recent due date. A 2019 report from the Consumer Financial Protection Bureau (CFPB) shared study results that found one in four consumers had collection activity on their credit report.[3] If your debt went into a collection account, you’re not alone. 

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What is a Debt Collection Agency?

When you first get your credit or loan account, you deal with the original creditor. If you got a credit line from Capital One, Discover, or Chase, they are your original creditor. If you have medical debt from a hospital visit, the hospital is one of your creditors. If you bought a car at CarMax, CarMax is your original creditor. Creditors use collections agencies to handle debt collection. This allows the creditor to be a loan company and focus on loaning people money, while the collection agency focuses on collecting debt. 

Most creditors use collections agencies to collect debt. The creditor pays the collection agency a percentage of the debt collected. Some debts, like charge-offs, are sold to debt buyers. A creditor can sell a debt to a debt buyer, and then the creditor no longer owns the debt. The debt buyer does. They keep what they collect. But then the debt buyer can use a collection agency to collect the debt. Courts sometimes look at the collection and buying activities of debt buyers to determine if they are truly a debt buyer or a debt collector, regardless of what they call themselves. 

The collection company will have a different name than the creditor. Creditors can use more than one agency, and it can get confusing if you have three different collection letters requesting different amounts of money for the same debt. Some debt collectors will ask for full payment, and others may ask for partial payment, and sometimes a debt collector will ask for both on the same account!  It’s also common to have multiple collection companies calling about the same debt. 

All debt collectors must follow rules and regulations under the Fair Debt Collection Practices Act (FDCPA). Encore and Portfolio Recovery Associates are two well-known debt buyers and debt collectors that did not follow the regulations under the FDCPA and they ended up with over $40 million in fines. They had inaccurate information, misrepresented debt, and gave people the wrong impression about the debt that was owed.[4]

Once a debt goes to a collection agency, the agency will start calling you, and they may call people you know to find out your address. They will send collection letters demanding full or partial payment, and they may threaten to sue you, garnish your wages, levy your bank account, or get a judgment against you. The collection agency will also report your nonpayment to credit reporting agencies, and nonpayment will affect your FICO score. Debt collection can be intimidating, but you have rights under the Fair Debt Collection Practices Act. 

What is the Fair Debt Collection Practices Act?

The Fair Debt Collection Practices Act (FDCPA) was made federal law in 1978 to protect consumers and their families from unfair debt collection practices. The Federal Trade Commission (FTC) enforces the FDCPA. The law applies to personal consumer debt, such as household debt, credit card debt, and medical debt. It doesn’t apply to corporate debt. The FDCPA covers the who, what, where, when, why, and how of debt collection for debt collectors. For instance:

Who: A collector must talk to your attorney if you have one. Otherwise, they can only talk to you or your spouse, except in limited circumstances. (Such as trying to find your address.) They can also talk to agencies they have to report to, such as creditors and credit reporting agencies. 

What:  A debt collection agency can’t collect extra money on your debt (interest, fees, extra charges, etc.) unless it’s in the original agreement or authorized by law. They can’t threaten to take your property unless they intend to legally take action. 

Where: Debt collectors can’t contact you at work if your employer doesn’t allow personal phone calls

When: Debt collectors can’t call you before 8:00 a.m. or after 9:00 p.m., and they can’t call you at inconvenient times. 

How:  Debt collectors can’t make threats or harass you or your family. They can’t threaten to arrest you or your family. They can’t let the phone ring continually, and, in letters and on the phone, they must identify themselves as a debt collector.

Why: The must validate the debt by informing the consumer of the creditor and the amount of debt that is owed. 

Debt collection scams are common, and if you think a phone call is a scam, contact your local attorney general’s office and make a report. Review your collection letters thoroughly, especially the legal notices in the fine print. The FTC has reports of debt collectors that pretend or imply they are lawyers. Collection agency letters often have “this is not from a lawyer” in small print at the bottom of the letter. After a collector talks to you, they must send you a letter to validate the debt. If you’re going to pay your debt, make sure you pay the right person. 

What are My Options for Paying Debt in Collection?  

Debt collectors will sometimes allow a lump-sum payment or monthly payment plan for a past-due account. It’s a good idea to talk to a credit counselor about debt management to explore all the debt relief options that are available. A credit counseling session can work around your availability and you can find counselors that offer phone, online, and in-person meetings. You can check with the National Foundation for Credit Counseling (NFCC) and the Better Business Bureau to find a reputable counselor that is trained in financial counseling and adheres to federal regulations. 

Pay off debt monthly with a Debt Management Plan (DMP)

You may be able to resolve your debt through a debt management plan (DMP). This is a solution for unsecured debt, such as debt with a collections agency and unsecured cards with high interest rates. In a debt management plan, you’ll work with a credit counseling agency to develop a repayment plan. In a DMP, the interest rate is often negotiated, and a lower interest rate and a reduction in late fees can give you a lower monthly payment. You can consolidate more than one debt into a debt management plan to make one monthly lump-sum payment to the agency handling your DMP. This can take a few years, but your account will show the debt was paid in full. 

Debt Settlement to pay off your debt

If your debt is strictly unsecured debt such as credit card debt and you can access money for a large payment towards your debt, a credit counselor might suggest you make a lump-sum payment for a debt settlement agreement. The downsides of this type of debt settlement agreement are that 1) you need to have money for a lump-sum payment and 2) your credit report will still have some bruises and 3) there are risks and tax burdens. 

The basic premise of a debt settlement is a four-step process. 

Step One:  You put money in an escrow account.

Step Two:  Creditors are called and negotiations are made to close the collections accounts with a partial lump-sum payment instead of the full amount due.

Step Three:  Payments are made.

Step Four:  The account is closed.

That might sound great, but the part of your account you don’t pay is considered income by the IRS as long as the forgiven amount is more than $600, and you’ll have a 1099-C form to deal with at tax time. 

If you don’t have a big chunk of money, debt settlement companies might suggest that you don’t pay your creditor and put the money payments into the escrow account instead. If you decide to make monthly payments toward a lump-sum payment for debt settlement, be sure to bargain for a low interest rate. 

Also, consider your credit report before agreeing to pay a debt settlement company. Missed payments are reported and will affect your credit score. At the end of a lump-sum payment debt settlement process, your account will be closed, but it will also show that it was “settled” instead of “paid in full.” (Don’t be afraid to ask if you can get a “paid in full” on your credit report instead of a “settled” notation.) With the late payments and absence of “paid in full,” your FICO score will be lowered. The FICO score is a widely used scoring method created by Fair Isaac Corporation and used by most credit reporting agencies. The number of points your score is lowered will depend on your personal finances. 

The process of debt settlement can take years if you don’t have a large enough lump-sum payment. A big risk with debt settlement is that the creditor can change its mind and decide to sue you while negotiations are ongoing. 

There are debt settlement companies that manage these negotiations, but the industry has unethical players. A key warning is when a debt settlement company asks for money to pay for their services before settling your debt. This is illegal. They can’t accept a fee until the debt is settled. 

For your own safety, never give your bank account information to a debt settlement company. A new account is created for your debt settlement escrow payments. Be sure to get a written agreement of your debt settlement and look at the terms for missed payments and late payments. It’s common for a debt settlement to be void for missed payments or late payments, so be sure you can make timely payments!

Debt Settlement Scams

Debt settlement scams are big business. The debt settlement company Freedom Debt Relief, one of the largest debt settlement companies in the U.S., was recently fined $5 million and had to pay $20 million back to customers. The Consumer Financial Protection Bureau reports the company charged people in advance and didn’t settle the debts they promised to settle. They also charged 18% and more of the total debt to settle the debt. 

Before you do business with a debt settlement company, a credit counseling agency, or work out a debt management plan, check for credentials and scams with the following agencies: 

  • National Foundation for Credit Counseling (NFCC)

  • Consumer Financial Protection Bureau (CFPB)

  • Better Business Bureau (BBB)

  • Your state attorney general

  • Federal Trade Commission (FTC) 

Review your settlement agreement, and if you see a fee being charged upfront, walk away or have an attorney review the debt settlement agreement before you sign. 

Do I have to pay my debt? 

You are obligated to pay a debt unless the statute of limitations has passed or the debt was discharged in bankruptcy. If you ignore debt, a creditor can sue you to get the unpaid debt and get a judgment against you. Your debt problems will get worse if your wages are garnished or your bank account is levied from a judgment. A judgment lien against your house will compound problems.

Bankruptcy and Debt Collection

If you can’t manage the lump-sum payment for a debt settlement, and you don’t have reliable income for a debt management plan, bankruptcy might be the solution for you. Bankruptcy can give you a big sigh of relief from collector calls and letters. When you file a bankruptcy petition, an automatic stay immediately stops all collection activity. Near the end of a successful bankruptcy case, you’ll get a bankruptcy discharge that will permanently eliminate qualified debt and forever protect you from collection activity for the discharged debt. You will no longer owe the discharged debt, and debt collectors must stop bothering you with phone calls and collection letters. Your account balances are registered as $0.00 on your credit report, and you’ll truly have a fresh start. 

A Chapter 13 bankruptcy lets you make repayment plans, and a Chapter 7 bankruptcy sells your non-necessary assets to pay off debt. (If you don’t have assets, the debt will still be discharged.) You must be within certain income limits to file a Chapter 7 bankruptcy, and you need regular income to file a Chapter 13 bankruptcy. A bankruptcy attorney can give you legal advice based on your personal financial situation. If you don’t mind a lot of paperwork and dealing with government offices, you can file Chapter 7 bankruptcy on your own and Upsolve can help you with the process. 

How Will Debt Collection Affect my Credit Score? 

Once your account is in collection, your credit score will suffer, even if you pay the debt in full. Late payments are reported to the major credit bureaus and partially paid accounts aren’t reported as “paid in full.” Your original creditor will report a charge off from unpaid debt, and the account can go to a collection agency or debt buyer. These actions are reported to “consumer reporting agencies” (credit bureaus). Credit scores are derived from these reports. Collection activity, missed payments, and unpaid debt will drop your FICO credit score. 

Continuous calls and confusing collection letters rob you of your valuable time. To reclaim your time, you can ask debt collectors in writing to stop the collection calls and letters or you can pay off your debt with monthly payments or a lump-sum payment. If you can’t make monthly payments and a lump-sum payment is out of the question, you have the option of filing bankruptcy. Upsolve can help you file a Chapter 7 bankruptcy with its web app to help pro se filers. You can also call legal aid or hire a bankruptcy attorney to help you with a Chapter 7 or Chapter 13 bankruptcy case. Take control of your time and decide to stop debt collection. 


  1. Board of Governors of the Federal Reserve System. (2019, December). The 2019 Federal Reserve Payments Study. Retrieved August 7, 2020, from https://www.federalreserve.gov/paymentsystems/2019-December-The-Federal-Reserve-Payments-Study.htm
  2. Yabroff, K.R., Zhao, J., Han, X. et al. . (2019, May). Prevalence and Correlates of Medical Financial Hardship in the USA. J GEN INTERN MED 34. Retrieved August 7, 2020, from https://doi.org/10.1007/s11606-019-05002-w
  3. Consumer Financial Protection Bureau. (2019, July). Market Snapshot: Third-Party Debt Collections Tradeline Reporting. Research & Reports. Retrieved August 7, 2020, from https://www.consumerfinance.gov/data-research/research-reports/market-snapshot-third-party-debt-collections-tradeline-reporting/
  4. Consumer Financial Protection Bureau. (2015, September). CFPB Takes Action Against the Two Largest Debt Buyers for Using Deceptive Tactics to Collect Bad Debts. Newsroom. Retrieved August 7, 2020, from https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-the-two-largest-debt-buyers-for-using-deceptive-tactics-to-collect-bad-debts/

Written By:

The Upsolve Team

Upsolve is fortunate to have a remarkable team of bankruptcy attorneys, as well as finance and consumer rights professionals, as contributing writers to help us keep our content up to date, informative, and helpful to everyone.

Attorney Andrea Wimmer


Andrea practiced exclusively as a bankruptcy attorney in consumer Chapter 7 and Chapter 13 cases for more than 10 years before joining Upsolve, first as a contributing writer and editor and ultimately joining the team as Managing Editor. While in private practice, Andrea handled... read more about Attorney Andrea Wimmer

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